a) when one company gains control of another by buying the majority of its shares
b) when two companies combine to form one new company
c) a way of assessing the value of a company for shareholders; it includes both dividend payments and the increase in value of the shares over the year
d) traditional way of assessing a company’s performance by dividing its profits by the number of its shares
e) investments, especially stocks, shares and bonds
f) changing the capital base of a company, i.e. the kinds of stocks and shares that comprise the company’s capital

Reading tasks

A. Understanding main points

Mark these statements T (true) or F (false) according to the information in the texts. Find the part of the text that gives the correct information.

1. Most of the big mergers between Swiss companies took place before 1996.

2. The merger of Sandoz and Ciba was good news for the Swiss banks.

3. Investment banks earn a lot of money by giving advice on restructuring.

4. German companies are having to restructure because it is difficult to compete internationally with high costs at home.

5. Companies list on the New York Stock Exchange in order to increase capital at minimum cost.

6. European companies traditionally use earnings per share as a way of estimating value to investors.

7. Valuation techniques such as TSR are only used in the USA.

Text A

Plenty of business for banks

Increasingly, big-ticket deals are being handled by foreign institutions

Switzerland is one of the world’s most attractive M&A playgrounds. It has several world-class companies with plenty of cash to spend on acquisitions and a rapidly restructuring corporate finance business.

Until a couple of years ago, the number of mega-deals could be counted on the fingers of one hand. But the market took off after 1996. That was the day Sandoz and Ciba, Switzerland's second and third biggest pharmaceutical companies, announced they were joining forces to create Novartis. Until then, it had been unthinkable that two big Swiss companies, based in the same industry and city, would risk throwing thousands of people out of work by merging.

The idea of one giant Swiss chemical company, or one global insurer, is no longer unimaginable.

However, the Ciba/Sandoz press release sent shock waves through the Swiss banking establishment. It revealed that Morgan Stanley had served as bankers for Sandoz and J. P. Morgan had acted for Ciba. The only Swiss bank involved was UBS, and it was given the minor role of banker for the Swiss stock market. Until then, Swiss companies had relied on their Swiss bankers to manage their deals.

The days when Switzerland’s most powerful bankers dominated the boards of Switzerland’s most powerful companies are over. A banker’s presence on a client's board could prevent an investment bank from winning new advisory mandates.

The restructuring of Switzerland's pharma and chemical industries has probably led to more investment banking fees being generated over the past couple of years than had been earned in the past century. More recently, the restructuring has spread to the financial services sector and much of the lucrative advisory work has once again fallen to non-Swiss banks.

M&A = Mergers and acquisitions

Text B

Growth’s financial complications

A company that seeks to extend operations around the world needs new financial structures to match.

When Hoechst, the Frankfurt-based chemicals and drugs group, listed its shares on the New York Stock Exchange it was a symbolic acknowledgement that a company which aspires to be global in operations must also be global in its approach to finance.

Intensifying international competition and high domestic costs are forcing German businesses – among others – into radical restructuring and a much greater reliance on global securities markets.

For funding their global ambitions, multinationals increasingly accept that to achieve the lowest cost of capital, they have to tap the international markets.

For many non-US companies, a vital element is an equity listing in the US, the world's most liquid and efficient market.

While most European companies still focus on traditional performance measures, US fashions are forcing them to look at new yardsticks, designed to measure the value they are creating for investors, such as total shareholder return (TSR).

'If you're a global company, new valuation techniques are just something you have to take on board,' says Nick Pasricha of Ernst & Young's corporate finance practice, 'because a proportion of your investors are subject to that influence.'

B. Identifying general content

The split sentences below describe the changes that are taking place as a result of globalisation. Join the first half of each sentence with the most appropriate second half.

1. Global companies
2. Corporate financial services
3. Mergers and acquisitions
4. If you are a global company,
5. Bankers are no longer
6. Large corporations are less likely to

a) are taking place between large companies in the same industry.
b) want to trade on the international securities market.
c) depend on local banks to manage their deals.
d) present on the board of their client companies.
e) are increasingly international.
f) you have to accept the new valuation techniques.

Vocabulary tasks

A. Complete the sentence

Use an appropriate word from the texts to complete each of these sentences.

1. When a company makes an official statement that is published in the newspapers, this is called a p… r… . (Text A, para 4)

2. If a company r… o… its bank, it means that it trusted it completely and would never use another bank. (Text A, para 4)

3. The directors of a company, the people elected by shareholders to carry on the management of that company, are often called the b… . (Text A, para 5)

4. Requests to a bank to act for a company are called m… . (Text A, para 5)

5. When a company offers its shares for purchase by the general public, it gets a l… on the stock exchange. (Text B, para 4)

6. A l… stock market is one in which investments can be traded quickly and easily. (Text B, para 4)

B. Understanding expressions

Choose the best explanation for each of these words or phrases from the texts.

1. mega-deals (Text A)

a) mergers between very large companies b) small, insignificant mergers

2. took off (Text A)

a) expanded suddenly b) came to an end

3. joining forces (Text A)

a) fighting over something b) coming together to form a more powerful group

4. lucrative (Text A)

a) earning lots of money b) earning little money

5. aspires to be (Text B)

a) wishes to be b) already is

6. tap the international markets (Text B)

a) get funds from the international markets b) follow the trends of the international markets

7. yardsticks (Text B)

a) ways to control something b) ways to measure something

8. take on board (Text B)

a) resist b) accept

C. Prepositions

Complete these sentences with an appropriate preposition.

1. Morgan Stanley served … bankers for Sandoz.

2. J.P. Morgan acted … Ciba.

3. UBS was given the role … banker for the Swiss stock market.

4. UBS was the only Swiss bank involved … the deal.

5. Most European companies still focus … traditional performance measures.

D. Opposites

Replace the underlined items with words from the text that have an opposite meaning.

1. Switzerland is one of the world's least attractive M&A playgrounds.

2. The idea of one giant Swiss chemical company or one global insurer was easy to imagine.

3. The only Swiss bank involved was UBS, and it was only given a major role.

4. Much of the lucrative advisory work has fallen to Swiss banks.

5. Intensifying international competition and low domestic costs, are forcing German businesses into radical restructuring.

6. Most European companies focus on new performance measures, such as profitability ratios and earnings per share growth.

Over to you

1. Discuss what role the banks play in corporate financing in your country.

2. Make a list of some of the problems that global companies have nowadays. (You can include both those mentioned in the texts and any others you know about) Discuss some of the solutions that companies are finding for dealing with these problems.